UK: FCA review of Consumer Duty board reports

Why should I read this?

Under the Consumer Duty (the Duty), a firm must prepare a report for its governing body setting out the results of its monitoring of consumer outcomes and any actions required as a result of the monitoring. Firms are also required to take certain procedural governance steps. At least annually, the governing body of a firm must:

• review and approve the report;
• confirm whether it is satisfied that the firm is complying with its obligations under the Duty;
• assess whether the firm’s future business strategy is consistent with its obligations under the Duty; and
• agree any required actions when approving the report. 

Firms were required to produce their first board report by 31 July 2024. To assist firms in embedding and implementing the Duty, the FCA has published the findings of a targeted, thematic review of firms’ first Consumer Duty board reports (Consumer Duty Board Reports: good practice and areas for improvement). 

What did the FCA do?

The FCA reviewed Consumer Duty board reports from 180 firms across the retail banking, wholesale, insurance, payments, consumer investments and consumer finance sectors. The sample included small, medium and large firms with a range of business models. The FCA also reviewed supplementary information provided to boards/equivalent governing bodies to enable them to conduct their assessment, along with minutes where applicable. 

The FCA rated the reports in the following areas: governance and oversight; culture and people; products and services; price and value; consumer understanding; consumer support; vulnerability; third parties; data strategies; closed products and services; action plan; and a rating for the overall assessment.

What were the key findings?

The FCA found that the best reports were structured in a way that made them easy for boards to scrutinise the key elements that the rules and guidance suggest they should cover.

Five key aspects of good reports

1.	Reports with a clear outcomes focus, featuring dedicated sections focussed on each of the four Duty outcomes and detailing what good outcomes look like for customers.
2.	Reports based on good quality data, including commentary on good outcomes supported by good quality management information (MI) to support the firm’s conclusions. Some firms effectively used a range of quantitative and qualitative data from internal and external sources, including comparator and benchmarking data, covering each of the four Duty outcomes.
3.	Reports featuring analysis of different customer types, including those with characteristics of vulnerability. Some reports showed how the firm’s monitoring approach allowed them to track whether different groups of customers were receiving different outcomes.
4.	Firms with clear processes for producing reports for their governing bodies to review and approve within the necessary timeframe. This included: • clear input of key business areas into the analysis; • evidence of the full involvement of the second and third lines of defence, giving the governing body assurance about the content and conclusions of the report.
5.	Reports with a focus on culture throughout the firm, including commentary emphasising firms’ commitment to effectively implementing the Duty and the role of a positive culture in delivering good outcomes. Some reports referenced how firms had undertaken people initiatives to ensure the Consumer Duty was embedded in the culture of the firm.

Five areas for improvement

1.	Some firms did not have sufficient data quality to justify conclusions to give governing bodies adequate assurance that they are meeting their obligations under the Duty. Also, some reports did not accompany their MI with adequate explanations to clearly illustrate evidence of good outcomes for customers.
2.	Some reports did not contain evidence that an appropriate amount and types of information had been shared between the firm and third parties across the distribution chain. Some examples/analysis of the information being passed across the distribution chain to allow firms to monitor if customers are receiving good outcomes would help provide assurance to the board.
3.	Some firms did not evidence that adequate consideration had been given to outcomes for different groups of customers, including those with characteristics of vulnerability. Some firms presented limited results showing data for customers with different characteristics of vulnerability, sometimes treating it as a ‘catch all’ category rather than assessing the specific needs of certain groups of customers.
4.	It was not always evident that there had been effective challenge from firms’ governing bodies on the content of the reports, for example, through the minutes of board meetings.
5.	Some action plans were not accompanied by further details such as timescales, action owners, and clarity on the data that would be used to evidence good outcomes. For example, some reports: • outlined issues that had been identified but did not provide assurance that there was a clear plan to resolve the issues; • stated that actions had been taken but provided little or no evidence to confirm that the remediation had been effective.

What should firms do?

The examples of good and poor practice are not intended to be prescriptive in terms of what Consumer Duty board reports must contain. The FCA has shared the examples to enable firms to decide for themselves how to improve their board oversight and reporting processes in the next year of embedding the Duty.

Firms subject to the Duty should consider the review findings and evaluate what changes, if any, they should make to improve their approach to completing their Consumer Duty board reports.

Remember – effective challenge is essential for the board to ensure the report evidences compliance with your obligations under the Duty. Your board should not be seen simply as a ‘rubber stamp’ for the report. 

Further reading on the Consumer Duty

FCA reports on the Consumer Duty price and value outcome

The UK Consumer Duty: The impact on your third party contracts

How Eversheds Sutherland can help

Whether it’s helping you to get authorised, developing new products, implementing large regulatory change or supporting you on ensuring that your processes and policies are fit for purpose, our team is well placed to help you. Our team has extensive experience of what the regulators expect and what the market requires and our technical and industry insight can ensure that your projects are managed efficiently to achieve a first class result.